Cheesecake Factory (CAKE) Q4 Earnings & Sales Miss Estimates

The Cheesecake Factory Incorporated CAKE reported lower-than-expected results for the fourth quarter of 2018. Earnings missed the Zacks Consensus Estimate after beating the same in the third quarter. Revenues missed estimates for two consecutive quarters.

Adjusted earnings of 60 cents per share missed the Zacks Consensus Estimate of 61 cents by 1.6%. The bottom line, however, improved 13.2% from the prior-year quarter.

Earnings and revenues in the reported quarter were driven by comps growth at the Cheesecake Factory restaurants. The company’s sales-building initiatives as well as cost containment helped the quarter’s results.

Shares of the company inched up 1.6% following the quarterly results in the after-hours trading. Also, the company’s shares have gained 4.2% over the past month, outperforming the industry’s 3.2% rally.

Let’s take a closer look at the numbers.

Detailed Revenue Discussion

Total revenues were $585.2 million, which missed the consensus estimate of $594 million by 1.5%. However, the top line improved 2.3% year over year on the back of increased comparable sales.

Comps at Cheesecake Factory restaurants increased 1.9% while the same declined 0.9% in the year-ago quarter.

Costs in Detail

Cost of sales ratio decreased 40 basis points (bps) year over year to 23%. Meanwhile, labor expense ratio was 35.8%, up 130 bps from the year-ago quarter.

Other operating costs were 24% of revenues, down 70 bps from the year-ago quarter. General and administrative (G&A) expenses accounted for 6.3% of revenues in fourth-quarter 2018, up 20 bps from the prior-year quarter. Notably, pre-opening expenses declined 40 bps year over year to 0.9% in the fourth quarter.

As of Jan 1, 2019, cash and cash equivalents totaled $26.6 million compared with $6 million as of Jan 2, 2018.

In the fourth quarter of 2018, Cheesecake Factory repurchased approximately 1 million shares of its common stock for $48.4 million. In 2018, the company bought back approximately 2.3 million shares of its common stock for $109.3 million.

In the fourth quarter, the company’s board of directors declared a quarterly cash dividend of 33 cents per share of the common stock. The dividend is payable on Mar 19, 2019, to shareholders of record at the close of business on Mar 4, 2019.

Development Details

Cheesecake Factory opened three Cheesecake Factory restaurants in the fourth quarter, meeting the target of opening five restaurants in 2018. Two restaurants were opened internationally under licensing agreements in 2018.

Q1 Outlook

For the first quarter, adjusted earnings per share are estimated to be 58-62 cents based on anticipated comps of 0.5-1.5% at Cheesecake Factory restaurants. Comps are expected to bear a negative effect of about 75 bps from the shift of Easter and the associated spring break vacations. The Zacks Consensus Estimate for earnings is pegged at 62 cents, at the high point of the company’s guided range.

2019 Guidance

Cheesecake Factory expects earnings per share of $2.54-$2.70. The Zacks Consensus Estimate for earnings in 2019 is pegged at $2.68, above the midpoint of the company’s guided range. Meanwhile, the company expects comps to grow 1-2%.

Food and wage inflations in 2019 are expected to be up 1-2% and 6%, respectively.

For 2019, Cheesecake Factory continues to expect capital expenditure between $90 million and $100 million.

Brinker EAT reported mixed second-quarter fiscal 2019 results, wherein earnings were in line with the Zacks Consensus Estimate but revenues surpassed the same. Adjusted earnings of 89 cents per share were in line with the Zacks Consensus Estimate and increased 2.3% on a year-over-year basis.

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